Apple Computers
BADM 470-01
Assignment #4
November 24th, 2005
Olivia Lam
Raymond Chow
Samer Dabboussi
Cissy Lei
Executive Summary
Apple is a product-cycle-driven company. If it introduces the appropriate
products, it will gain share in the consumer market, even if that market is flat year
after year. Apple has developed a set of strategies, which will continue to grow its
base of Mac users and Apple consumers over time.
Apple has faced challenges competing in an extremely competitive
market. However the company has overcome the majority of these challenges
by changing strategic focus and entering the high end consumer market. Overall
Apple has pulled itself out of maturity/decline back into the growth stage. An
important element of Apple is its ability to differentiate itself from its competitors
with the combination of introducing new innovative products and implementing
aggressive marketing tactics.
If Apple continues to improve their strategic management, marketing,
human resources, production, and financial position, they will be successful in
catering to their target market.
2
Company History
On April 1 1976, Steven Wozniak and Steven Jobs had decided to sell the
machine named Apple I, designed by Wozniak. It was not until 1977 when Apple
II was introduce at local computer trade shows that people actually notice it. The
Apple II was an impressive machine that came in a plastic case and includes
color graphics. With the invention of the inexpensive Apple Disk II (floppy drive),
Apple sales has further increased ever since. In 1980, when Apple III was
released, the company has expanded to several thousand employees and began
selling computers abroad.
In 1981, IBM released its first PC. The PC quickly began to dominate the
playing field. Jon later had realized in order for his company to compete in the
market, Apple would have to be a “grown-up” company and figure he was not the
ideal man for the job. So in 1983, Jobs began to invite John Sculley, then
president of Pepsi-Cola. In April, Sculley became president and CEO of Apple.
On January 22, 1984, Macintosh was introduced and sold well until users
were fed up with the small amount of Ram and lack of hard drive connectivity.
So around the beginning of 1985 was when Jobs and Sculley began to argue.
Jobs believed that Sculley knew nothing about the computer industry and did not
put a lot of effort to learn. While Sculley believed that Jobs was dangerous and
out of control. For this reason, Jobs then switched over to managing the Apple
“Macintosh” project. In May 1985, Jobs convince Sculley to schedule a meeting
in China, and decided to have a boardroom rebellion while Sculley was gone.
Information leaked to Sculley which lead to an argument between them two.
Later Jobs resigned and Steve Wozniak returned to college,
leaving Sculley as the head of Apple. At the same time Microsoft’s Bill Gates
introduce the Windows 1.0, which had many similarities to the Mac GUI
(graphical user interface).
It was not until Mac twin inventions of the LaserWriter, the first affordable
PostScript laser printer for the Mac, and PageMaker, one of the first Desktop
Publishing programs ever that made them back in the game. In 1987, the Mac II,
Apple was shipping 50,000 Macs a month. This did not last long until 1990,
where the market was saturated with PC-clones of every conceivable
configuration and Apple was the only company selling Macs. Apple was
experiencing difficulty providing both hardware and software to drive an industry.
In 1991, Apple released its first generation of PowerBooks which was a
success. In the meanwhile, the PDA-Newton were being ready to be released in
August 1993, but was a failure due to the extremely poor hand-writing recognition
(2.1 MB).
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Sculley began to lose interest in the day-to-day operations of Apple. In
June 1993, the Board of Directors relieved Sculley of his position as CEO, putting
Spindler in the big chair. Sculley eventually resigned after being chairman for
several months.
In 1994, Apple co-developed with IBM and Motorola to produce an
extremely fast processor which ran on the PowerMac family based on the
PowerPC chip. This powerful chip has enabled Apple to be able to surpass the
speed of Intel’s newer processors.
By June 1995, another obstacle Apple was experiencing was not selling
computers but instead it was building them which led to them to $1 billion dollars
in backorders. The problem grew worst as Windows ’95. Due to the external
and internal pressure, Apple took its worst plunge ever in the winter of 1995-96,
to pushed low-cost Performa’s over mid-range PowerMacs. This incident had
cost Apple a $68 million loss for the quarter. In January 1996, Spindler was
asked to resign as CEO and was replaced by Gil Amelio, the former president of
National Semiconductor.
Amelio has split the company into 7 separate division, each responsible
for its own profit or loss. There has made tremendous efforts to bring down the
losses. In late December 1996, Apple made an announcement that it will be
acquiring NeXT and that Steven Jobs will return back. This merger was to
acquire NeXTstep, which is going to be the basis for Apple’s next-generation OS,
which was schedule for a 1998 release.
In early July 1997, Apple announced the resignation of Gil Amelio and in
the meantime, Fred Anderson, Apple’s CFO has been put in charge of day-to-
day operation. Jobs was also given “expanded roles” at Apple for interim. Jobs
began to make striking changes in the structure of Apple and was referred to as
“interim CEO”. Jobs also announced an alliance with Microsoft for a 5 year
patent cross-license and more importantly, a final settlement in the ongoing GUI
argument. In order to gain back its market share from the Clones Vendors such
as Power Computing. Apple also announced to buy out Power Computing’s
MacOS license. On November 10, 1997, Jobs implement a new selling strategy
making computers available to purchase both over the web and the phone. The
Apple Store was a runaway success, and within a week was the largest
eCommerce site on the web. For the first time ever for Apple it had a net
profitable First Quarter of $44 million. In April 1998, $57 million and by July
1998, it rose as high as $101 million, pushing Apple’s stock to several 52-week
highs in just a few years. The iMac was the best selling computer in the nation
for most of the fall.
In January 2000, Jobs unveiled Apple’s new Internet strategy: a suite of
mac-only internet based applications called “iTools” and an exclusive partnership
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with Earthlink as Apple’s recommended ISP. Jobs also announced that he would
be dropping the “interim” from his title, becoming permanent CEO of Apple.
In the second half of 2000, Apple experience slower sales as well as the
industry as a whole. One of the major contribution was the high price of the G4
Cube compared to Apple’s other product. Another factor was the DVD-ROM
drives in their consumer and professional machines instead of CD-RW drives.
This has resulted in missing sales opportunities to customers who wanted to burn
their own CDs. So in January of 2001, Apple announced a new line of
PowerMacs, which included a new “SuperDrive” which could read and write both
CDs and DVDs. These were all part of Apple’s new corporate strategy during the
slow time in the Technology industry. They also take advantage of introducing
the personal electronic devices-CD-players, MP3 players, digital cameras, DVD-
players, etc. by building Mac-only applications that added value to those devices.
In May 2001, Steve Jobs announced that Apple would be opening a
number of retail stores across America, selling not only Apple computers, but
various third-party “digital lifestyle’ products such as mp3 players, digital still and
video cameras, and PDAs. In the meantime, major update to the iBook line, a
smaller and lighter design was in progress. In the Fall of 2001 brought new
revisions to the PowerBook G4 and iBook which sold extremely well. In late
October, Apple introduced its first non-computer in several years, the iPod. The
iPod was a small hard-drive based digital music player and represented Apple’s
first hardware addition to its ‘digital hub” strategy.
In 2002, Steve Jobs announced that free iTools would be rolled into a new
subscription-based “dotMac” service. In January 2003, Apple release iLife, a
bundled software package that included iTunes, iPhoto, iMovie and iDVD, for
$50. Apple’s financial troubles continued throughout 2002 due to the weak
PowerBook and PowerMac sales. In 2003, Apple however began to recover,
and to build for the future. In the meantime, the iPod was beginning to take off.
In April of 2003, Apple unveiled the iTunes Music Store, which would sell
individual songs through the iTunes application, for 99 cents each. These songs
could only be played only on Macs or iPods. In October 2003, Apple released
iTunes for Windows with the user-friendly Windows version of iTunes which
include both iPod and Music Store. In the first year alone, the iTunes Music
Store sold more than 70 million songs. iPods had moved from expensive to toys
to must-have Christmas presents, and Apple found itself in the position of having
a monopoly for the first time in several decades.
5
Analyzing the Computer Industry
After analyzing the industry, it is clear to notice that the market itself has reached
the level of maturity. At this current level, the dominant operating strategy for firms would
be to maintain sales by product differentiation and by managing cost efficiently. The
most recent “concentration ratio of 45 percent (CR4=45)”1 also indicates that the top four
industry giants only command an average of 11.25% per firm of market share. The
present loose oligopoly nature of the industry also indicates that there is an intense level
of rivalry among players, that is, there are number of firms offering close substitutes and
firms are forced to engage in price wars in order to generate sales, consequently
depleting profit margins. Currently, Dell is leading the market with highest sales of PC’s
in the United States, and being the dominant firm in industry Dell acts as the price setter.
Due to these conditions it is clear to see that Apple’s long term survival is going to
depend on innovative product differentiation and heavy marketing campaign if it chooses
to remain within this industry. So why is it that good products can fail and inferior
products can succeed and why is it so hard for computers to innovate?
Maturity Decline
Current Position
Ideal Positioning
Growth
Development
Industry
Growth Profits
Rate
1
U.S Bureau of Census, Census of Manufacturers, 1997, and industry reports.
6
s
Total U.S PC' Shipped
56.0 Billion Units
Other 33.9% Dell 33.1%
Apple 3.5%
IBM 4.7% Hp 19.5%
Gateway 5.3%
According to “The Invisible Computer”, a successful innovative product must be
balanced: marketing, technology and user experience must all play critical roles, but one
cannot dominate the others.2 Different factors are important at different stages in the life
cycle of computers. In the early stages, technology dominates. All that matters in that
stage is better, faster, cheaper and more power. In the middle stages, marketing
dominates. And finally in the maturity stage, where the computer industry is at now,
technology is a commodity, user experience dominates over everything. Consumers
want convenience and value for their money, ease of use and emotional appeal.
The above graph tries to explain why innovation is so difficult for the computer industry.
In the early stages, the innovators and technology enthusiasts drive the market. They
2
Norman, Donald A. “The Invisible Computer” 1998
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demand technology. In the later stages, the pragmatists and conservatives dominate
the industry demanding solutions and convenience. Even though the technology market
is initially driven by the innovators and early adopters, they make up only a small
percentage of the market. The market is made up mainly of the pragmatists and
conservatives. 3
The above graph depicts the needs-satisfaction curve of technology. New technology
initially start at the bottom left of the curve, delivering less than what the customers
demands and expects. As a result, consumers demand better technology with more
features that offer more peace of mind regardless of the cost of inconvenience. This
demand causes the sophistication of technology development to reach a point where it
can satisfy the basic needs.4
Computer companies, such as Apple Inc, to maintain their position of their share of the
market, try to create innovative products. This is essential to mass marketing, to bring
prices down and quality up. But this procedure also requires standards, procedures, and
administration. This can actually lead to a decrease in product innovation. Once
process modernization sets in, it puts the entire computer company into an efficiency
mode. It leaves the company little time, energy and inclination to look outside their
narrow ways into whole new approaches.
This is a reason why smaller newer companies can take over: they are faster and are
willing to take risks. Apple was able to grab onto the digital music market because
creating innovative products and taking such a huge risk for producing it. This is
3
Norman, Donald A. “The Invisible Computer” 1998
4
Christensen, C.M. “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail” 1997
8
perhaps the main reason why once computer companies enter the mature stage in the
industry life cycle it is so hard for them to be innovative. To properly fight this trend,
larger corporations should have separate divisions charged with innovation, leaving
them free of the tyranny of the quarterly profits and losses statement. This gives that
particular division the ability to concentrate on bringing in fast return on equity. If a
company is not failing in its new product attempts, then they aren’t doing something
right. To be innovative, a company must first face defeat. Lack of failure is a sign of
conservative, safe and eventually suicidal behavior.
The Five Forces Impacting Industry
There are a numerous
competitors within the
Number of Competitors industry offering similar
products.
The high competition is
causing firms to stabilize
prices in order to produce
Stabilized Prices
sales. The stable prices
have lead to small profit
margins.
Currently, the computer
Firm Rivalry market is in maturity as
(HIGH) Slow Market Growth compared to the boom in
sales a few years ago and
is therefore experiencing a
very slow growth rate.
Also, in attempt to increase
sales, firms are engaged in
aggressive promotion
strategies which could lead
Industry Profits are low.
to the occurrence of
“prisoner’s dilemma” which
will further reduce profit
margins.
There are not many other
products that can offer the
same satisfaction, of using
computers, to customers.
However, there are some
considerations. The new
Substitute Products cell phone technology is
(MEDIUM) Product Sensitivity slowly merging the
applications used in
computers into the handset.
E.g. Nokia 9500 and Palm.
Also, if computers were
solely used for
entertainment purposes,
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whether it is gaming or
graphic design, the threat of
substitutes would indeed be
a credible threat. E.g.
Playstation and Xbox
Luckily, the applications
and uses of a computer can
only be offered by the
device itself. The demand
for having a device with
Demand/Supply
numerous functions can
only be met using a PC and
this prevents any lost sales
by substitute products that
satisfy this function.
Although brand names are
a key sales driver in this
industry, it seems that their
affect on sales is relatively
Brand Sensitivity
minor as compared to the
affect of prices. This also
Power of Buyers
relates to rivalry within the
(Low)
industry.
There could be possible
buying groups in the
Buying Groups Education market that force
Apple to give purchase
discounts.
Difficult to enter the market
because of the large
Capital Requirements
financial requirements to
manufacture the products.
The market seems to be in
an equilibrium condition,
that is, the demand for
computer products is
Market Condition approximately equal to the
supply, and therefore entry
Threat of New Entrants
into the industry is not
(Low)
worth the large capital
requirement.
The monopolistic
competitive nature of the
industry does not generate
profit opportunities for firms
Potential Profits
and makes this industry
less attractive for new
entrants.
Power of Suppliers The power is low due to the
Supplier Concentrations
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suppliers being competitive
to gain customers to
manufacture products for.
Suppliers manufacture
(LOW)
goods that are not final end
Vertical Integration products, thus not needing
to open retail stores to sell
products.
The analysis above clearly indicates that companies are indeed sitting in a
comfortable position in the industry and paying for that comfort with low profits. In order
to generate increased revenue the companies would have to redevelop there strategies
and target other industries where there is low market presence and high opportunity.
Apple saw this opportunity and capitalized on it with the creation of the iPod. The iPod is
a small hand help computer device that stores MPEG 3 files. The iPod ranges from 10
gigabytes to 40 gigabytes in size and can hold anywhere from 2500 songs to 10000
songs. As the iPod emerged in the markets, Apple captured a niche in the emerging
digital music industry. Through its innovation and creativity Apple has broken out of its
box as a boutique computer maker and emerged as a force to be reckoned with in
consumer electronics and music. The iPod success has generated revenues up to “$3.5
billion”5 through the world wide sales of “4.6 million portable music players”6.
This success has moved Apple from a company with a minuscule PC market
share to achieving market shares of 65%, 70% and even 90% in other industries. Being
the first of its kind, the iPod, allowed Apple to diversify from a competitive market into a
new flourishing industry where Apple has become a dominant player, setting the
standard for new entrants (potential rivals). The success of the iPod has put Apple back
on the map and placed them in ideal position within the industry life cycle. With
consumer demand rising and Apple being the dominant supplier, they have capitalized
on large profits by setting premium prices. Looking at Apple’s future strategic paths, it
seems that Apple is using its resources to diversify and enter into different industries
where the markets are not as saturated as the computer industry. Most companies have
finally understood that “success is not merely producing a product that does the job, but
is being able to bring ideas, bits and pieces if you will, from different industries then
putting them together to come up with something new and innovative that ties into
peoples needs or lifestyles.”
5
Schlender, Brent. “How Big Can Apple Get?” Fortune. 21 Feb. 2005. Vol. 151 Iss. 4 Pg 66.
6
Ibid.
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SWOT ANALYSIS OF APPLE
Strengths Opportunities
• Professional notebooks • New product development
• Financial position • Expand retail operations
• Brand • Grow international sales
• R&D spending • Wireless products
• Customer retention • iPod/ Music downloads
Weaknesses Threats
• Professional desktops • Strong competition
• Cannibalization of products • US education market
• Supply of raw materials • Demand for IT products
• Reliance on US/iPod sales
• Lawsuits
SWOT analysis for Apple Computers Inc: Data monitor
Strengths
Professional notebooks
Sales of Apple’s professional notebooks have been strong in recent times.
The company’s sales in this area have been boosted by sales of its 12 and 17-
inch models. The continued strong sales performance of Apple’s 15-inch
notebook has also boosted the company’s sales in this area. In 2003 sales of
Apple’s PowerBook increased by 56% to $1,299 million overtaking PowerMac as
the single largest product contributor to total revenues, helping to drive overall
growth for the company.
Financial position
Please refer to the Financial Analysis section of this Report.
Brand
The Apple brand is well regarded amongst most consumers. When
thinking of Apple computers, the words “innovative”, “easy to use”, and ”trendy”.
Apple also enjoys a high level of brand awareness and brand recognition for its
products throughout the markets in which it operates. High brand awareness and
brand recognition of Apple’s products will help to drive sales of the company’s
products. Apple’s strong brand name helps create barriers to entry within the
market and differentiates the company from its competitors helping to guarantee
future sales.
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Research &Development Spending
Apple’s research and development expenditure totaled $471 million and
$446 million in fiscal 2003 and fiscal 2002, respectively. Rapid technological
advances characterize the personal computer industry, so Apple’s ability to
compete successfully is heavily dependent upon its ability to ensure a continuing
and timely flow of competitive products and technology to the marketplace.
Continued R&D expenditure should see the company continue to develop new
and innovative products to drive company revenues.
Customer retention
As Apple is the only PC vendor in the industry that designs and
manufactures its own hardware and system software, they are able retain its
customers more easily than other companies in the industry as it releases fresh
products compatible with their existing PC. Providing the company can maintain
the quality of its new product developments to the same standard as the rest of
the industry, the company should be able to record a high level of customer
retention.
Weaknesses
Professional desktops
Apple’s professional desktops business has experienced sluggish sales in
recent times. Sales of the company’s PowerMac products have fallen by around
20% year- on-year to drop to their lowest level for a number of years. If future
unit sales fail to partially or fully recover, it will be difficult for Apple to improve its
overall profitability.
Supply of raw materials
While most of the company’s raw materials are available from a number of
sources, other materials tend to be only available through a limited selection of
suppliers, and as such, the company is susceptible to a supply risk for key
components. Also, Apple must contend with price fluctuations to ensure the
continuity of supply, as pricing pressures and industry competition may drive up
the cost of raw materials. Should problems with supply vendors occur, Apple’s
ability to produce its products in a timely manner may be adversely affected.
Therefore, Apple’s reliance on a small number of suppliers will not benefit the
company.
Reliance on US sales
The United States represents Apple’s largest geographic marketplace.
Approximately 51% of the company’s net sales in fiscal 2003 came from sales to
customers inside the United States. This focus on the US market makes the
company more vulnerable to adverse localized market conditions that may affect
the revenues and profits generated by the company. Apple’s reliance on the US
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market possibly means that the company could be hit badly if any economic
downturn affected this particular country.
Lawsuits
Apple is subject to certain legal proceedings. Claims could have a material
adverse effect on its financial condition, liquidity or results of operations.
Unresolved cases include issues such as patent infringement, false advertising
and unfair business practices. These legal issues represent a considerable threat
to Apple, as the company’s insurance may not be sufficient to settle some of the
more costly cases that could possibly arise.
Opportunities
New product development
One way in which Apple could stimulate demand in the marketplace is to
develop new products that more closely match customer needs. Apple’s research
and development spend should enable it to develop new products. For example,
Apple has developed the PowerMac G5, which is the world’s first 64-bit PC. The
company hopes that the release of the product will stimulate demand to boost its
professional desktop revenues and its overall company revenues.
Expand retail operations
Since inception of its retail initiative in 2001, Apple has opened over 65
retail stores in the United States. One of the main goals of the retail initiative is to
bring new customers to the company and expand its installed base through sales
to both first time computer buyers and those switching from other computing
platforms. Additionally, the stores provide a forum in which the company is able
to present entire computing solutions to users in areas such as digital
photography, digital video, music, children’s software, and home computing.
Apple has attempted to locate its stores at high traffic locations in shopping malls
and urban shopping districts. The company could look to open more retail outlets
in order to increase the coverage of its stores in the US. Increased store
coverage may mean Apple could potentially further expand its installed base
through sales to both first time computer buyers and those switching from other
computing platforms.
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Threats
Strong competition
Apple is confronted by aggressive competition in all areas of its business.
The market for the design, manufacture, and sale of personal computers and
related software and peripheral products is highly competitive. This market
continues to be characterized by rapid technological advances in both hardware
and software development, which have substantially increased the capabilities
and applications of these products, and have resulted in the frequent introduction
of new products and significant price, feature, and performance competition.
Over the past several years, price competition in the market for personal
computers has been particularly intense. Apple’s competitors who sell Windows-
based personal computers have aggressively cut prices and lowered their
product margins to gain or maintain market share in response to weakness in
demand for personal computing products.
Apple’s results of operations and financial condition have been, and in the
future may continue to be, adversely affected by these and other industry wide
pricing pressures and downward pressures on gross margins. The principal
competitive factors in the market for personal computers include relative
price/performance, product quality and reliability, design innovation, availability of
software, product features, marketing and distribution capability, service and
support, availability of hardware peripherals, and corporate reputation.
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Human Resources Analysis
Background of APPLE
In the last two decades, Apple computer went through many changes in their
product line, corporate direction, corporate mission, corporate strategy and most
importantly, their management system. In 1990, executives at Apple Computers
realized that the company needed to focus on volume and employ a strategy to increase
market share to fight off price wars as the computer industry became more competitive.
The Human Resource department saw this as a management opportunity to transform
itself as they change their business model. This plan required operating expense to also
be lowered leading to profit margins to go down. The Vice President of Human
Resources played a key role in providing a persuasive vision and strong leadership. The
Human Resource Management team also did a good job of managing the growth of
employee expense while maintaining an aligned and committed workforce. This became
beneficial as they did not foresee how far the margins would go down.
Even though Apple experienced some difficulties in its industry, advancement in
technology was still at the front position. Apple has put in astonishing work to align
s
business with its Human Resource function. The Human Resource function' mission is
to contribute to the company’s success by building up a outstanding working
environment that draws and hold on to outstanding employees, support their position
and loyalty, and encourage them to do extremely well.
Apple Computer’s Human Resource function to acquiring its mission requires:
• Take an active role with management in developing the philosophies and strategies
that define the working environment.
• Be the keeper of the strategy for maintaining employee alignment and commitment;
maintain the policies, programs, and processes that support employee alignment and
commitment.
• Keep management aware of any changes in the alignment and commitment of the
critical asset — its people.
Old Values
• We make great products that people love to use. No compromises.
• If I have passion and produce results, I will have a place at Apple.
• In return for my extraordinary effort and personal commitment, Apple will take
care of me better than anyone else. “We are the Best”
• Apple is more than a business. My identity is Apple. Being here means I’m
special
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New Values
• We will strive to offer an exciting environment that stimulates creativity and a high
degree of personal involvement.
• We want individuals to participate in the success and the risk associated with
being with a dynamic enterprise
• We will strive to provide opportunities and support to increase individual
employability
• We will strive to be honest, truthful, and open in all our interactions.
• We will encourage and provide incentives for individuals to prepare for long-term
financial needs
• We will ensure that you have protection against catastrophic events.
• When necessary, we will provide a helpful and respectful bridge into the future.
The Changing Nature of Employer/Employee Expectations
When Apple went through major change, employees at Apple became concern
about their job security and their expectations of the company. Change was a threat to
them because they feared the possibility of losing their jobs, and their expectation of the
company needed to be addressed. During this time, many employees were re-
evaluating their identity and commitment to Apple. In addition, many in the Human
Resource Management thought that they had did a poor job in preserving their corporate
culture. Also they experienced role in conflict being either employee supporter or
manager supporter. The Human Resources of Apple thought it would be important to
talk about current issues in Apple, instead of the pass problems.
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Role and Organization Structure of Human Resources
VP of Human
Resource
Central Business
Services Partners
Apple Domestic Multicultural HR planning Compensation Employee
University employment programs and Benefits Relations and
Services
The Human Resource organization structure includes a VP of Human Resource.
Under the VP of Human Resources are two major leadership position that report directly
to them: Business Partners and Central Services.
The Business Partners are assigned to each major business unit in Apple and
provides consultant and act as business partners to the top executives unit. Business
Partners develop HR strategies to maintain the business units’ competitive strategy and
train managers on how to apply people management tools and processes. In addition
they help resolve any issues that arise.
The Central Services function comprises of: Apple University, domestic
employment, multicultural programs, HR planning, compensation and benefits, and
employee relations and services. The main intention of Central Services is to plan and
deliver products and services that permit management to lead their people resources
and to allow employees to perform their jobs efficiently and effectively.
The role of HR is guided strongly by several key implementation assumptions:
1) Management takes responsibility for human resources.
2) Individual employees are accountable for achieving their goals.
3) Human Resource must provide competitive high-quality products and services that
support Apple’s business proposition.
4) Human Resource must establish norms and measures for evaluating the
effectiveness of its products/services.
5) Human Resource must be seen as champions of fairness and integrity in Human
Resource practices.
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Role of Technology
Apple thinks that the use technology vital and all employees must have access to it;
therefore, they created technology-based tools to improve employee and management
efficiency. Using technology, Human Resources was able to reducing clerical and
transaction expense.
Change Approach
• Provide all employees with access to technology
• Transform routine but critical work activities
• Provide information on demand
• Change communications patterns
• Create tools for self-sufficiency
Eventual Benefits of Change
• Reduced clerical/transaction expense
• Increased knowledge-based problem solving
• More resources to leverage across organizations
• Higher level of customer satisfaction
• Increased productivity through standardization
Employee Help Line. The new service delivery model that is a essential tool for HR is the
Employee Help Center, which deals with daily employee concerns and counseling. The
Help Center consists of a group of 14 people who are trained in Apple policies and
procedures. In addition online Internet support accessible as well. Complicated
questions and situations are forwarded to a group senior HR staff. Lastly, for more
serious matters face-to-face investigation may be required. In the last year, The
Employee Help Line obtained about 165,000 calls.
Shifting HR transactions to the line. Apple HR is uses technology focus for people
management. HR is used the Macintosh desktop technology to transfer all traditional
administration and documentation operate business. By doing this, HR is able use their
time efficiently to help managers develop and apply the skills they need to manage their
people resources. With the use of The Employee Help Line managers are able to
perform this role.
With the use of the internet technology, Apple uses On-line applications handle
manager-employee transactions. These include compensation changes, promotions
and demotions, and performance reviews, to adding someone to the payroll. The only
transaction that HR must get involved in is involuntary termination. In addition, all
policies and procedures are available on-line.
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Transitioning the Skills of the HR Community
Past Today and Beyond
• Managers are very busy running • A new financial model drives our
the business function
• HR is expected to take care of the • HR functional excellence is
people essential
• Business partner is the thing to be • Seamless HR will be a requirement
• Being liked (“fit) is the thing to be • Policies, processes, and systems
• We can pick and choose what we are priority
want to do • Heavier focus on teaching versus
• Structure, discipline, process are doing
boring • Management and employee self-
• We have unlimited personal sufficiency is a must
freedom • Emphasis on organizational
• Money is no problem transition and effectiveness
• HR is responsible for protecting • Client and employee satisfaction
are key measurements
• HR supports a variety of
businesses within Apple
• HR is the norm by which others
measure themselves
20
Since it was hard to prepare entry-level HR people, Apple finds that the best place for
them to learn was on the Employee Help Line. This basic learning approach is the first
step of the HR career.
Measures Used to Evaluate Best Practice
In addition to the traditional metric of HR professionals to employees, HR measures its
effectiveness using HR expense as a percentage of operating expense. Apple HR has
moved from being qualitatively oriented to quantitatively oriented.
Previous Human Resource employees managing the company:
450
Human Resource
Employees
17,000
Today’s Human Resource employees managing the company:
230
Human Resource
Employees
17,000
21
Critical Success Factors
• Be an intelligent, sensitive voice in helping the enterprise resolve the dilemma
between pragmatism and humanism as you compete globally in the 1990’s
• Become obsessed with customer services.
• Be committed to innovation and finding new ways of doing work.
• Become obsessed with the relevant use of technology to drive management, HR,
and employees to become more self-sufficient.
• Be expert in:
o Workforce dynamics
o Employee development and career management
o Evaluating management capabilities
o Facilitating organizational change
• Become much more quantitatively focused in adding value to the business.
• Continuously examine your assumptions and strategies for the role of the HR
function and how it supports the business
22
Production Analysis
Maturity Stage
For companies that are currently in the maturity stage of the industry life cycle, it
is important to improve the product and reduce operating costs. In order for
Apple Inc. to grow and increase market share, they must be more proactive
about technological changes in the market. However, Apple Inc. would not be
able to survive if they continued to produce only computers with its Macintosh
line of computers. So in order to be successful, the company must concentrate
in attempting new products.
Transition
When products mature, the company must work to extend the life cycle by
introducing product variants; “new and improved” or additional add-ons or
features. Since the computer industry is at the maturity stage, Apple Inc. will
have to sell off their existing products and start again with new products and new
innovations.
ve
They' shifted our conceptions of how a computer should look and feel, and
changed the way we interact with technology and listen to music and connect
with friends. Some innovations are small, like the trash icon or the placement of a
trackpad. Apple makes wildly imaginative products with a consistency few
companies rival. "Idealism is a major part of Apple," says Andy Hertzfeld, an
original Macintosh team member. "The company operates for artistic values
rather than for commercial purposes."7
To consistently improve the products, Apple Inc. is slowly transforming it into a
high-end consumer-electronics and services company “a la Sony” Apple is
gradually transforming as of 1999 when the company introduced iMovie, a video
editing program for the Mac that brought professional-quality editing to the
masses.8
In September, 2005, there has been announcements that Apple Inc. is thinking of
shifting to using chips from Intel in is systems beginning next year. This will help
regain some of the market share back that was competed from Windows-based
rivals.9 This will definitely be a turning point for Apple Inc. to be back in its
original products
7
Apple’s Other Legacy: Top Designers. September 6, 2005
http://www.businessweek.com/technology/content/sep2005/tc2005096_1655_tc210.htm
8
Where “Think Different” is Taking Apple. August 5, 2003
http://www.businessweek.com/technology/content/aug2003/tc2003085_3215_tc112.htm
9
Intel’s Chips: Juice for Apple? September 6, 2005
http://www.businessweek.com/technology/content/sep2005/tc2005096_4576_tc210.htm
23
Not only focusing on production efficiency and successors, Apple Inc. has
decided also to add an additional division instead which gear towards the digital
music market. Since then the iPod then latter the iPod nano, was introduced.
s
Ever since the trendy device, the iPod was introduced, Apple' stocks are soaring
as high as $77 to $100. As of Dec. 6, the stock was trading at around $64. This is
s
the same Apple that opened the year at $21.28. “And it' all because of one cool
little music player.” Apple’s new product is not only about being cool as its
number one selling feature. Its unique designs, marketing savvy, and cult figure,
truly integrated, valuable innovation and past mistakes all contribute to this
success. 10 Now competitor’s like Hewlett Packard and IBM companies are also
trying to come up with some similar music devices as well.
.
Growth Stage
Apple Inc. is currently at the growth stage increasing its production capacity while
retaining quality. They are still currently producing and offering the iPod shuffler
and the iPod. Although the iPod mini which was the first one to be introduce out
of all the devices, is almost reaching close to maturity stage. To ensure that
Apple Inc. maintains the market leader in digital music, improving the current
product is the way to go. When the iPod Nano was introduced, it basically
replaces the best-selling iPod mini, with a brand-new model. It offers a higher
resolution color screen, and a decrease in size of 25 % less wide (half the
thickness), a greater hard drive capacity and is able to hold up to 25,000 photos
you can sync from you Mac or Windows PC via iTunes.
Figure 1. Products offer by Apple Inc.
Before After
Apple iMac
Machintosh Power Macintosh G4
PowerBook iPod mini
Performa iMac G5
iPod shuffle
iPod nano
10
Could Apple Blow Its iPod Lead?, December 07, 2004
http://www.businessweek.com/technology/content/dec2004/tc2004127_7607_tc185.htm
24
Marketing Analysis
Background
Apple was and currently is a part of a newer age of marketers focusing on
image and quality. Apple is in a constantly changing industry and faces tough
competition by many names in the industry. It is never easy when you have
Microsoft as a competitor. The most important element of a marketing plan is the
development of a marketing strategy that will successfully penetrate the market.
Most companies these days are using the traditional marketing tactics that
are ineffective for their organizations. Some companies try to benchmark tactics
from other successful companies; unfortunately such tactic rarely works to that
company’s target market. Essentially as time progresses, industries are getting
more competitive and businesses are looking for ways to set themselves apart
from the competition. An effective strategic marketing plan can provide a
company with that edge.
Apple tried several marketing tactics such as repositioning their products
and several branding techniques, however with Microsoft in the picture it became
hard to directly compete. Internal conflicts arose as the company was on the
downfall, essentially entering the declining stage of the industry life cycle.
Apple Computers has been in the PC industry for close to 30 years and they
have experienced some major bumps along the way, especially with a player like
Microsoft in the market. Initially marketing tactics for Apple were relatively simple
with the introduction of the Apple II. It was the first personal computer to come in
a plastic case and include color graphics. It was a hot item and people from all
over were lining up to purchase it. However players in the industry soon caught
on, resulting in the PC market being saturated with clones.
Apple Stores
There are over 120 Apple stores in the North America. Apple decided to
install a number of techs, called Genuises. The Genuises are dressed in cool
black uniforms and offer anyone that walks in the store – Mac or PC users --
technical service and advice. So far, according to a USA Today dispatch, over
100,000 people visit the Genuises every week. And the stores represent nearly
50 percent of Apple’s retail sales. The stores are setting a burning pace for
revenue growth. Apple stores were on track to generate $1.2 billion in annual
sales, compared to Apple’s $8.3 billion fiscal revenue. Fascinatingly, Apple
serves only about 2.6% percent of the computing public.
25
. Apple Store downtown Vancouver.
The intimacy created by using real people to connect with other real
people may not seem to be revolutionary, but when measured against the
widespread forms of disturbing marketing tactics used by traditional marketers, it
is clear how something like the notion of the Geniuses becomes an extraordinary
tool to reach and influence the consumer.
Apple positioning
We believe that Apple had done an excellent job in positioning
themselves. It is rare that you are able to see students that do not own an iPod.
Since the iPod introduction many people switched from using PCs to Macs.
Apple have now positioned themselves as a cool and hip gadget with the iPod, a
must have object. Also apple were successful in positioning themselves with
quality computer that are ad ware, virus, non freeze computers.
Many companies fail to position themselves in the right fashion into their
target market. This is something that tends to be overlooked in many businesses
today. Companies will be able to attract new businesses and customers and
creating the right buzz in to industry. Essentially if a company positions itself the
proper way they can control how they want to be perceived by consumers.
Ultimately this is the organization’s goal, and if they can accomplish it their
market presence will be tremendously larger.
In the process of rejuvenation apple has changed numerous corporate
strategies. Currently apple computers are targeted to certain type of customers
instead of targeting the entire PC buyers industry; this was a very smart move by
Apple to set the company away from the Microsoft competition. The company is
now targeting the upper class and high end user. Currently Apple’s market share
is only 2.6% of the PC marketplace which is significantly lower than the
competition; they have essentially created a market with very few substitutes.
There are essentially no products in the industry that offer the high end user
experience that Apple has established. Therefore the company must continue
pursing with this strategy in order to continue catering to their niche market.
26
Competitive Advantage
In a rapidly evolving world, it becomes of great importance to be
distinguished from the competition, and this is why many businesses nowadays
have set off to maximize their competitive advantages over competing
companies. One such company is Apple, whose unique product line and dynamic
hardware have earned them a competitive advantage in the market. Yet, what is
key to the survival and thriving of any business is their market tactics and
strategies. These are so important that many business analysts have repeated
that the marketing tactics and strategies are what give a name to the company.
The success of Apple stems for their foresight for what will attract people
to their product and the consequent execution of that vision. Rather than
marketing their product based on its key features and technology like their
competitor Dell, Apple adopts a new strategy by depicting how their product will
enrich their customer’s life and become an indispensable part of it. Ultimately,
they try to create a connection with potential consumers which results in an influx
of individuals who buy Apple products and enjoy them.
Apple is renowed in the market for their aggressive advertising strategy.
This makes the company stand out from their competitors who are employing
more conservative marketing approaches. For example, a typical comercial for
Apple products lavshes on the superiority of their product while bashing their
competitors’ goods. We all remember the ad aired a couple of years ago showing
intel laptops catching fire while getting flattened by steam rollers. Apple has seen
great benefits in their ads despite the fact that they appear controversial to many.
It is precisely these advertisements that have earned Apple many advertisement
awards while also enabling Apple to become a great contributor in the PC
market.
Website
Another way in which Apple established strong brand equity was through
their interactive and informative website. Within the website consumers can find
information on the company’s different products. The website is very well
constructed and further divided to different sectors such as ipod, map, iTunes…
the website also includes vision mission and corporate strategy as well as the
story of the company. Also the information on their stocks and finance are found
on the website. More than that, the company has found a way to have
consumers start their own blogs.
27
Future Plans
We recommend that Apple should continue to expand into new markets as
they have done recently. We can not tell how long the iPod will have this effect
on the market and on Apple Computers. In order to successfully accomplish this
new strategy, they will need to be one step ahead from the competition in the
markets they enter. Apple should be thorough and precise in its study before they
take thei decisions just as they did with the introduction of iPod.
As technology develops more innovative products will be introduced, thus
creating increased competition. Nowadays there are new phone technologies
that have been introduced that have mp3 playing compatibilities and have huge
storing capabilities up to 32 gigs. Apple now needs to respond with a
contingency plan to maintain their customer retention levels. Technology and
competition are probably the two most serious threats that Apple has to consider.
Perhaps offering added incentives to customers or adding new features to the
existing iPod are examples that could help with retention levels. Apple now has
had good improvements on their products with the introduction of the iPod NANO
and new MAC mini.
28
Lessons to learn form Apple
In their last quarter Apple Computer has announced that their earnings
more than quadrupled mainly due to holiday sales of the iPod digital music player.
More than 28 million iPods have been sold since it was introduced in 2001.
We believe that apple was extremely successful in the reengineering the
Apple Computers Corporation from a company that is specialized with computers
stuck in the decline stage to a company that has many specialties that is
booming in the growth stage. There are some important marketing lessons to be
learned from all this. First of all, Apple has created a product for a hungry market
that has the financial means to purchase it even with the relatively high price
point. Ever since the introduction of the MP3 file format we have seen the huge
market potential for a device like the iPod. Apple was successful in finding a hot
and hungry market, and creates a product for it.
Apple computers further more benefits from these new markets by
constantly introducing new versions such as the introduction of the iPod Shuffle -
a lower-priced version of the iPod with flash memory instead of hard drive
storage.
This has created a halo effect as the increasing sales of the iPod have
generated more sales for Apple computers (Macintosh).
Brand Identity
Apple realized the concept of establishing a good brand identity and spent
massive resources to provide end users with quality high end products. Potential
consumers are going to be spending top dollar for these products, therefore the
buying decision is more complex. Consumers are only going to purchase goods
of high quality and from highly reputable and credible companies. As a result
they have built up a solid reputation and a very strong brand name becoming one
of the most high end brands in the business world.
Innovation and quality are related with high price, the high price for the
most part guarantees the customer with quality goods. This is a psychological
approach that Apple has used, and has incorporated it within their business
model. The human psychology says that the higher the price, the better the
product. Cheap Apple products would mean low quality and a desperate need
for cash. Ultimately this would hurt the Apple brand from both a short term and
long term perspective. Apple can not break the association of themselves and
29
quality, nor can they consider significantly lowering their product prices. This
would result in entering into direct competition with the likes of Dell; furthermore it
would create a price war with Microsoft.
New Market Opportunities
Many businesses nowadays are venturing to new markets to have an
edge over their competitors. These new markets are a means for businessmen to
embrace opportunities as well as change strategic focus. The world of
technology is a dynamic, rapidly evolving one creating new business
opportunities for organizations with every new development. Apple was able to
foresee the need for a change in strategic focus and hence began to invest in the
digital music industry.
With the dawning of the new century, the music industry faced a
desperate dilemma. The advent of new digital music technologies allowed for
novel methods of distributing and listening to music. People in the music industry
were slow to react, and as a result, free file share systems became the most
popular yet illegal way for consumers to download songs via the internet. Apple
welcomed this change and saw an opportunity to invest in a new market and
develop a new digital music product; the iPod MP3 player along with a new
service, the iTunes Music Store.
The more the company accelerated the revolution of digital music, the
greater their initial success, which proved to be overwhelming. Apple, for the first
time, had successfully entered a new market which caused them to abandon
their roots of the PC market. With a new strategic focus at hand, many have
wondered how this will impact Apple as a computer company, since most of its
profits are still brought about by the computer business
It is our view that now that Apple has lessened their emphasis on their
computer industry; they will begin to feel a tremendous impact from their action.
On the other hand, redirecting their strategic focus is of great importance for
Apple too. As long as Apple recognizes it’s strength and continues to provide
quality hardware and great marketing strategies, they can successfully diversify
and enter new markets. This however is not an implication for Apple to abandon
their PC market.
30
Financial Analysis
Since getting itself out of the Maturity/Decline life cycle and back into the Growth life
cycle, Apple Computers has been benefiting from rapid growth, with sales and earnings
that are expanding at a faster rate than firms in other industries.
Apple participates in several highly competitive markets, including personal computers
with its Macintosh line of computers, consumer electronics with its iPod lines of digital
music and distribution of third party music through its new iTunes Music Store. Apple is
widely known for its innovation in personal computing as well as an emerging leader in
the market for distribution of digital music.
Growth of $10,000 YTD through 11-18-05
Stock: Apple Computer
Industry: Computer Equipment
Index: S&P 500
Total Returns % 2000 2001 2002 2003 2004 YTD
Apple Computers -71.1 47.2 -34.6 49.1 201.4 100.5
+/- Industry -54.4 33.7 -9.0 3.2 177.5 103.1
+/- S&P 500 -62.0 59.1 -12.5 20.5 190.5 96.0
In order to maintain and increase its current hold onto the market, Apple should focus its
spending on delivering timely updates and enhancements to its existing line of personal
computers, displays, operating systems, software applications and portable music
players. In order to remain competitive, we believe that Apple should increase their
investment in research and development in order to maintain and extend its position in
the markets where it now competes. Similar to building a growing portfolio, Apple should
risk some of their capital in ways that will increase and preserve it. In order to do this,
Apple must devise a way to keep the growth they’ve already established, take business
from their competitors, showing up where growth is anticipated, invading adjacent
markets and investing in new lines of business.
31
Returning to Double Digit Growth
Companies must build growth portfolios of varied initiatives, similar to a
diversified investment portfolio, designed to risk capital in ways that can both
increase and preserve it.11 Michael Treacy, the author of ‘Returning to Double
Digit Growth’ wrote,
‘The foundation of a growth portfolio corresponds to five basic sources
of revenue, or growth disciplines:
1. Keeping growth already earned
2. Taking business from competitors
3. Showing up where growth is going to happen
4. Invading adjacent markets
5. Investing in new lines of business.
The extent to which pursuing these five sources of revenue can and
will successfully generate growth is entirely contingent upon the
discipline and creativity with which they are managed.’
1. Keeping Growth already earned
The easiest way to improve growth is to slow the rate at which you lose your
existing customers. These methods include: increase value, influence the buying
decision process, offer services that entangle customers, create tailored offerings
that keep the customers coming back, preempt customer defections, and foster
emotional bonds.12
2. Taking Business from Competitors
To take business from competitors, Michael Treacy suggests: developing better
customer information through applying economic pressure, committing to
superior value with breakthrough operating models, and boosting market share
by acquiring competitors.13 Through the change of leadership, Apple cut back on
investments for products that were non-profitable yet increased R&D spending.
3. Show up where Growth is going to Happen
Market positioning, when done right, is perhaps the easiest way to grow,
because it requires little more than establishing a presence in the fastest-growing
segment of a market and getting a decent piece of the action. This can be done
through:14
1. Spotting growth plays early by finding shifts in the purchase criteria, value
breakthroughs, or shifts in demographics;
2. Moving early to establish position; and
3. Actively pruning low-growth positions
11
Treacy, Paul. “Returning to Double Digit Growth.” Consulting to Management. Mar 2004. 15.1
12
Treacy, Paul. “Returning to Double Digit Growth.” Consulting to Management. Mar 2004. 15.1
13
Treacy, Paul. “Returning to Double Digit Growth.” Consulting to Management. Mar 2004. 15.1
14
Treacy, Paul. “Returning to Double Digit Growth.” Consulting to Management. Mar 2004. 15.1
32
4. Invading Adjacent Markets
This requires a steely appraisal of whether a company’s core operating
capabilities can truly provide an advantage in an ancillary market, and whether
an organization can build or acquire the additional capabilities needed to meet
the competitive standards in the market.15 Prior to entering the MP3 market
Apple was able to asses the markets attractiveness since it had the ability to
expand there. Since, Apple built a strong financial background and strong
leadership it was able to let its core capabilities lead it into a focused industry.
Apple’s lead in the adjacent industry proved it was a natural growth opportunity.
Apple’s balance sheet shows $8.52 per share in total liabilities, mostly from
accounts payable. Those liabilities are easily covered by $22.34 per share in
assets, including no less than $15.39 a share in cash and short-term
investments.16 Apple’s stated net worth is $13.82 a share. A buyer purchasing
shares at $40 leaves Apple with profits of $ 26.18 per share to invade adjacent
markets.
Overall, looking at the 2004 financial statements, Apple is in a favorable financial
situation. However, there is no assurance that Apple will be able to continue
invading adjacent markets to provide products and services that enable them to
compete in the market. This is the path Apple has taken to date, which has lead
to positive fluctuating revenue growth.
5. Invest in New Lines of Business
This discipline is built on smart investing rather than management skills bolstered
by a cautious investor’s mindset.17 Apple’s competitive investing capabilities
have grown from $229 million to $2496 million over a nine year period. A
correlation between short-term investments to sales can be seen. When sales
grow, revenue is invested into marketable securities increasing investors’ wealth
and ability to grow financially to support operations. One of Apple’s strengths lies
in its finances. Although IT spending is expected to remain low in the immediate
future, Apple’s strong balance sheet should stand it in good stead.18 The
company currently has a strong cash position with cash reserves of
approximately $4.5 billion.
Apple’s strong financial position will enable the company to operate with a
greater deal of financial flexibility. The company could use its cash reserves to
expand its business, develop new products or acquire companies.
15
Treacy, Paul. “Returning to Double Digit Growth.” Consulting to Management. Mar 2004. 15.1
16
Emgardio, Paul. Et la. “Apple: It may be too late to take a bite.” Business Week. 21 Mar 2005. Iss. 3925. pg.84
17
Treacy, Paul. “Returning to Double Digit Growth.” Consulting to Management. Mar 2004. 15.1
18
Datamontior.com
33
6. Five Disciplines Together
The five growth disciplines complement each other and act as a portfolio,
creating a powerful growth stream that carries along an entire organization.
Software is the user experience. As the iPod and iTunes prove, it has become
the driving technology not just of computers but of consumer electronics.19
Apple will continue to gain revenues through the basic iPod. The portable digital-
music player is in its infancy. Charlie Wolf, an analyst with Needham & Co.,
ll
projects that by 2010 there' be 500 million portable players in circulation, about
s
one for every 15 people on the planet. Apple' share will almost inevitably slip as
competition mounts, but the vastness of the market will mean many more billions
of dollars in sales for the company.20
Still, Apple will have to tread carefully as it enters the low end of the PC market if
it is to avoid succumbing to the profitless prosperity. To beat the odds, Apple will
keep its costs low so it can maintain its profit margins and thereby have the
s
resources to keep innovating. That' one reason that Apple has opted to keep its
new products simple, with fewer or less expensive components.
Conclusion
In conclusion Apple has evolved from its start in the market in the early 70’s.
Apple has successfully been able to redevelop its corporate direction to being a
strong competitor and innovator in the computer business. Apple Computers
started facing problems in this fast changing industry and the growing
competition. After Apple has realized that the computer industry was generating
low profit margins, the company diversified its product range to penetrate into the
music electronic and consumer electronic industries, while also redeveloping its
personal computer products in the price driven industry. Apple grew in to the
maturity stage and started heading in to decline stage.
Apple was very successful in turning the situation around with the start of the
iPod revolution which helped change put Apple computers back into the growth
stage. The analysis of different functions: Strategic Management, Marketing,
Human Resources, Production, and Finance shows that Apple has managed
these areas well enough to give it an advantage as compared to its rival
competitors.
19
Schlender, Brent. “How Big Can Apple Get?” Fortune. 21 Feb. 2005. Vol. 151 Iss. 4 Pg 66.
20
Sloan, Paul. “What’s Next for Apple?” Business 2.0. Apr 2005 Vol 6. Iss 3. Pg 68.
34
Appendix
Apple Finance at a Glance
Size 09-30-2004
Total Revenue $Mil 12,603
% Industry Revenue 2.92
Industry Computer Equipment
Apple is in an industry with a relatively large number of competitors, looking at its sales
compared to those of its industry, Apple is one of the smaller players.
Industry Life Cycle
Large Growth Cycle
Apple’s competitors tend to fall around the small cap growth area in the Industry Life
Cycle. Apple Computer is different from its peers in that it has a large cap bias. Apple
has seen a steady growth over the past three years, with its results over the past year
being particularly impressive. Like its competitors, Apple’s earnings per share have also
grown at a very high rate over the past three years. In order to maintain this current
growth rate, Apple will have to devise a way to raise additional capital from outside
sources at some point if it wishes to continue their current upward trend.
Apple Valuation
S&P
Apple Industry
500
Forward Earnings
2.74 5.31 5.35
Yield
Forward P/E 36.5 18.9 18.7
Price/Cash Flow 24.1 13.8 14.4
Price/Sales 4.3 2.1 2.9
S&P 500 data through 11-16-05
*Industry Average
35
With an estimated forward earnings yield of 2.96%, it indicates that that percent would
be the annual return it would generate if its profits remained fixed and the company paid
out all of its earnings as dividends. In order to generate decent returns for its investors,
Apple will probably only have to realize moderate growth in earnings or a higher
valuation by the market.
Income Statement
2000 2001 2002 2003 2004 TTM
Sales $Mil 7,983 5,363 5,742 6,207 8,279 12,603
Operating Income $Mil 522 -344 17 -1 326 ---
Income Tax $Mil 306 -15 22 24 107 ---
Net Income $Mil 786 -25 65 69 276 1,011
Earnings/Share $ 1.09 -0.04 0.09 0.10 0.36 1.20
EPS (Cont Ops) $ 1.09 -0.06 0.09 0.10 0.36 1.20
Dividends/Share $ 0.00 0.00 0.00 0.00 0.00 0.00
Total Shares Mil 650 714 722 726 746 830
Cash Flow Statements
Fiscal year-end: September TTM = Trailing 12 Months
2002 2003 2004 TTM
Operating Cash Flow 89 289 934 2,226
- Capital Spending 174 164 176 223
= Free Cash Flow -85 125 758 2,003
Balance Statement 2004
Balance Sheet
Assets $Mil Liabilities and Equity $Mil
Cash 7,526.0 Current Liabilities 3,123.0
Other Current Assets 1,850.0 Long-Term Liabilities 544.0
Long-Term Assets 1,112.0 Shareholders' Equity 6,821.0
Total 10,488.0 Total 10,488.0
36
Work Cited
U.S Bureau of Census, Census of Manufacturers, 1997, and industry reports.
Norman, Donald A. “The Invisible Computer” 1998
Christensen, C.M. “The Innovator’s Dilemma: When New Technologies Cause Great Firms to
Fail” 1997
Schlender, Brent. “How Big Can Apple Get?” Fortune. 21 Feb. 2005. Vol. 151 Iss. 4 Pg 66.
Apple’s Other Legacy: Top Designers. September 6, 2005
http://www.businessweek.com/technology/content/sep2005/tc2005096_1655_tc210.htm
1
Where “Think Different” is Taking Apple. August 5, 2003
http://www.businessweek.com/technology/content/aug2003/tc2003085_3215_tc112.htm
1
Intel’s Chips: Juice for Apple? September 6, 2005
http://www.businessweek.com/technology/content/sep2005/tc2005096_4576_tc210.htm
Could Apple Blow Its iPod Lead?, December 07, 2004
http://www.businessweek.com/technology/content/dec2004/tc2004127_7607_tc185.htm
Treacy, Paul. “Returning to Double Digit Growth.” Consulting to Management. Mar 2004. 15.1
1
1
37